Five Ways to Unlock More Value from Climate Risk Assessments

With California Rule 261 requiring initial climate-related financial risk disclosures by January 1, 2026, many companies are refreshing their TCFD reports. Performing a climate risk assessment to meet regulatory compliance requirements is critical and provides a starting point for understanding of how climate change could impact a company’s operations, strategy, and financial performance.

Building on that understanding and based on our market observations, here are five ways to get more from these mandatory assessments:

1. Support the business case for decarbonization projects

Climate risk and decarbonization are often described as two sides of the same coin, but many companies struggle to make the link, instead taking siloed approaches to each.

Because transition risks related to policy, market and reputation can be mitigated by decarbonizing your business, it’s been our experience that many decarbonization projects may clear investment hurdles to show ROI even if only a small portion of the corresponding reduction in the financial effect of climate risk was factored into the business case.

2. Inform long-term capital planning

Physical risk assessments highlight where a company is exposed to substantial property damage and business interruption. Transition risk assessments highlight products with high-carbon footprints that may face stranded asset risk or be subject to carbon taxes, and opportunities to innovate to meet customer preferences or adjust product prices. Incorporating these insights into capital planning prevents surprises, protects reputation, and opens doors to new products and pricing opportunities.

3. Integrate climate risk assessments into Enterprise Risk Management (ERM) programs

As mentioned in our first blog post, we are seeing a trend where ERM programs are beginning to incorporate climate risk into their annual assessments. With the support of subject matter experts, ERM can help streamline the effort of performing a climate assessment and can monitor the interplay of climate risk with other material business risks on a go forward basis, reducing costs and identifying synergies across the organization.

4. Improve supply chain resiliency

Although California Rule 261 does not explicitly require companies to conduct supplier-specific climate risk assessments, we are seeing leading companies expand their physical risk assessments to include key suppliers, including those suppliers’ production sites and logistics hubs. The extension of the assessment generates insights that can lead to improving supply chain resiliency, reducing downtime when there is a supply chain disruption, whether it is from a climate event or otherwise.

5. One assessment, many regulations

Many companies are rightfully focused on California Rule 261 compliance given the fast-approaching disclosure deadline. However, the Holy Grail is interoperability - conducting a single, integrated climate risk assessment that can fulfill the requirements of other mandatory and voluntary reporting frameworks such as ISSB’s IFRS S2, CSRD’s ESRS E1 and CDP.

The good news is that all these standards or frameworks are based on the recommendations of the TCFD. By performing a robust climate risk assessment, you can perform the analysis once to meet all your climate disclosure requirements.

If you’re still not convinced of the value, watch the replay from our webcast on August 14^th, where we dive deeper and share real stories of value creation and preservation stemming from a climate risk assessment!